Our Global Head of Fixed Income Research Andrew Sheets takes a
look at multiple indicators that are pointing on the same
direction: strong growth for markets and the economy.
Read more insights from Morgan Stanley.
----- Transcript -----
Andrew Sheets: Welcome to Thoughts on the
Market. I'm Andrew Sheets, Global Head of Fixed Income Research
at Morgan Stanley.
Today I'm going to talk about an unusual alignment of signs of
optimism for the global cyclical backdrop and why these are
important to watch.
It's Friday, January 9th at 2pm in London.
2026 is now well underway. Forecasting is difficult and a
humbling exercise; and 2025 certainly showed that even in a good
year for markets, you can have some serious twists and turns. But
overall, Morgan Stanley Research still thinks the year ahead will
be a positive one, with equities higher and bond yields modestly
lower. It's off to an eventful start, certainly, but we think
that core message remains in place.
But instead of going back again to our forecasts through the year
ahead, I wanted to focus instead on a wide variety of different
assets that have long been viewed as leading indicators of the
global cyclical environment.
I think these are important, and what's notable is that they're
all moving in the same direction – all indicating a stronger
cyclical backdrop. While today's market certainly has some areas
of speculative activity and excessive valuations, the alignment
of these things suggests something more substantive may be going
on.
First, Copper prices, which tend to be volatile but economically
sensitive, have been rising sharply up about 40 percent in the
last year. A key index of non-traded industrial commodities for
everything from Glass to Tin, which is useful because it means
it's less likely to be influenced by investor activity, well,
it's been up 10 percent over the last year.
Korean equities, which tend to be highly cyclical and thus have
long been viewed by investors as a proxy for global economic
optimism, well, they were the best performing major market last
year, up 80 percent. Smaller cap stocks, which again, tend to be
more economically sensitive, well, they've been outperforming
larger ones.
And last but not least, Financial stocks in the U.S. and Europe.
Again, a sector that tends to be quite economically sensitive.
Well, they've been outperforming the broader market and to a
pretty significant degree. These are different assets in
different regions that all appear to be saying the same thing –
that the outlook for global cyclical activity has been getting
better and has now actually been doing so for some time.
Now, any individual indicator can be wrong. But when multiple
indicators all point in the same direction, that's pretty worthy
of attention. And I think this ties in nicely with a key message
from my colleague, Mike Wilson from Monday's episode; that the
positive case for U.S. equities is very much linked to better
fundamental activity. Specifically, our view that earnings growth
may be stronger than appreciated.
Of course, the data will have a say, and if these indicators turn
down, it could suggest a weaker economic and cyclical backdrop.
But for now, these various cyclical indicators are giving a
positive read. If they continue to do so, it may raise more
questions around central bank policy and to what extent further
rate cuts are consistent with these signs of a stronger global
growth backdrop.
For now, we think they remain supporting evidence of our core
view that this market cycle can still burn hotter before it burns
out.
Thank you as always, for your time. If you find Thoughts on the
Market useful, let us know by leaving a review wherever you
listen. And also, please tell a friend or colleague about us
today.
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